Morgan Stanley settles email charges for $12M

Morgan Stanley agreed to pay $12.5 million to settle claims that its Dean Witter subsidiary failed to provide emails related to pending arbitration cases by claiming the information was lost during the Sept. 11 terrorist attacks.

The Financial Industry Regulatory Authority said the emails had been sought by claimants and regulators from October 2001 through March 2005.

Morgan Stanley claimed the messages were lost after the companys computer servers were destroyed during the attacks on Sept. 11. FINRA said it found that, in actuality, the firm had managed to recover millions of pre-9/11 emails and had had some of them destroyed to prevent further investigation.

The integrity of our process demands that brokerage firms comply with their obligations to search diligently for, and provide in a timely way, information and documents required in arbitration proceedings and regulatory investigations, FINRA enforcement chief Susan Merrill said in a statement.

The settlement simultaneously resolves separate charges related to the firms failure to provide required supervisory materials to numerous arbitration claimants. Under the agreement, Morgan Stanley will provide $9.5 million to a fund meant to compensate the two groups of affected customers. FINRA estimates that thousands of claimants will be eligible for payment.

FINRA also imposed a $3 million fine on the firm, and mandated that Morgan Stanley hire an independent consultant to review its retail brokerage operations procedures for complying with discovery requirements in arbitration proceedings.

Dean Witter Reynolds Inc. merged with Morgan Stanley in 1997 to create Morgan Stanley DW. That entity was folded into its parent company in April four months after FINRA filed its initial complaint against the subsidiary.

Morgan Stanley, which didnt admit any wrongdoing, said it in a statement that it was pleased to have reached an agreement with FINRA to resolve these legacy legal matters and put them behind the firm.

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